user-experience ramblings

Penalising the unsophisticated in financial services

My Dad used to work in the City. He’s always been a great source of information about investing and financial management. He recently sent me a snipped article he found in his weekend papers (there’s an aside story in there about his old-school physical sharing versus digital, for another day). The article [“Tracker funds that could come off the rails” – Emma Wall, Telegraph Money 18-May-2013] was about passive investing and exchange traded-funds (ETFs). He sent it to me as I’ve been looking at different ways of saving that will provide better returns than lazy cash ISAs and ‘high street’ fund packages.

My search for a solution had be prompted by looking at Nutmeg, an up-start provider of ETF investment portfolios that simplify it just enough to make it accessible to the Everyman but with enough scope to receive better returns than you might manage from the big name brands. The article began with the intention of bringing clarity to the complex world of investment options (it started by explaining what bonds were) but ended up doing nothing of the sort, and if anything, making it seem even more complicated and seemed to be suggesting tracker ETFs were bad but I couldn’t work out if there were circumstances where they might be the right solution. Emma Wall, or the ‘experts’ she got comments from, really did make a mess the piece, it became incomprehensible and I’m in no way an idiot with no financial knowledge.

Others have mused that the sheer complexity of the financial markets today was a significant factor behind the world economic crises of recent years. Simply nobody can or could hope to understand the system. In order to make the best of it, of course you’d have to pay for expertise but the industry has made its products so impenetrable that even when it’s simplified is just way too difficult to get a handle on. Naive investors like me end up leaning on the simpler services like Nutmeg or the high street but in doing-so are excluded from the best returns and are penalised with considerable fees and a form of pseudo fund-management that the more complex products don’t. I know there’s no such thing as a free lunch and it pays to become more educated in this sphere but I’m not sure it’s that fair a system right now as it so heavily penalises all but the most educated investor.

Every day when I work with FS brands I try really really hard to challenge this self-serving obsession with elitism and complexity but I do wonder if I’m pushing a boulder uphill when the underlying products and markets their based upon are so ludicrously difficult to unravel.